Money-laun­der­ing hack and Ja­panese law could threaten a wipe­out of

Re­pay­ment ac­tion against bank­rupt Mt Gox may crash the en­tire mar­ket, says Hasan Chowdhury

The Sunday Telegraph - Money & Business - - Technology Intelligence -

At 5pm on a sum­mer’s evening in June, Tokyo’s District Court set in mo­tion a se­ries of events that now threat­ens a wipe­out of the world’s most pop­u­lar dig­i­tal cur­rency.

The court started the process of civil re­ha­bil­i­ta­tion for cred­i­tors against Mt Gox, a for­mer cryp­tocur­rency ex­change based in Shibuya, Tokyo, which was once re­spon­si­ble for fa­cil­i­tat­ing more than 70pc of the world’s Bit­coin trans­ac­tions.

Mt Gox filed for bank­ruptcy in 2014 af­ter it emerged that about 850,000 coins, then worth $500m (£382m), had dis­ap­peared from its plat­form in a laun­der­ing scheme mas­ter­minded by Alexan­der Vin­nik, a Rus­sian crim­i­nal who was ar­rested in Greece in 2017.

Since 2014, in­vestors across the world have been bat­tling to get their money back from the nowde­funct ex­change.

Mark Karpelès, the for­mer chief ex­ec­u­tive of Mt Gox, has de­scribed the ex­pe­ri­ence as sim­i­lar to “when you fall from a build­ing and you see the ground get­ting closer”.

Tokyo’s district court ruled that the Mt Gox bank­ruptcy pro­ceed­ings were not suf­fi­cient and should be­come what is known in Ja­panese law as civil re­ha­bil­i­ta­tion. This would see Mt Gox’s left­over hold­ings of 160,000 Bit­coins paid to for­mer in­vestors who were wiped out.

How­ever, there is a twist. In­stead of be­ing re­im­bursed at $600 per Bit­coin – the value back in 2014 – the civil re­ha­bil­i­ta­tion could see in­vestors re­ceive Bit­coin at their cur­rent value of $6,513.

The man who is tak­ing charge of the process is Nobuaki Kobayashi, a lawyer known as “Tokyo’s Bit­coin and with deep ties to the Silk Road, an on­line black mar­ket for drugs sales, was start­ing to move up to 100,000 Bit­coins from the wal­let.

In the past, Bit­coin mar­kets have pre­vi­ously fallen flat when large sums of Bit­coin have been traded in for fiat cur­rency, which is why ac­tiv­ity from the for­mer Silk Road wal­let has been iden­ti­fied as a cause for the plunge that saw 12.5pc knocked off Bit­coin’s value in the space of 24 hours last week.

But the po­ten­tial dam­age to the mar­ket is yet to be re­alised. Cred­i­tors have un­til Oct 22 to file claims against Mt Gox, af­ter which the po­ten­tial pay­out could be worth more than $1bn. Mt Gox is yet to make any of­fi­cial pay­ments to cred­i­tors. Ac­cord­ing to Kim Nils­son, an early cus­tomer of Mt Gox and one of sev­eral cred­i­tors de­mand­ing re­pay­ment, a sig­nif­i­cant move to cash out any Bit­coins re­ceived in re­pay­ment as fiat cur­rency could see the whole mar­ket crash.

“If a cred­i­tor says that I would pre­fer to be paid out in [Ja­panese] yen, for ex­am­ple, which would be the norm for Ja­panese civil bank­rupt­cies, then the trustee has to sell the Bit­coins to con­vert them into money,” said Nils­son.

“In some form you have to do that on the mar­ket, but that’s go­ing to push down the price be­cause there’s no buyer for 160,000 Bit­coins out there, it’s sim­ply worth too much. It’s worth

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